Challenges ahead for Scotland's independent schools - Robin Turnbull

Independent schools in Scotland are facing significant cost pressures. There could be more to come. Depending on which political party succeeds in the next General Election, their charitable status may be removed, meaning an extra 20 per cent VAT charge payable on school fees. With some schools already having to increase fees more than planned, consider redundancies and even close, the impact could be considerable and planning by schools and parents is essential.

Last year saw an important tax relief on business rates for schools with charitable status removed (except for specialist schools for vulnerable children and others with special needs). In England and Wales, these schools still receive at least 80 per cent relief on business rates.

Like many other organisations, independent schools have had to keep up with wage increases to remain competitive, while facing higher energy and infrastructure prices. With the cost of living affecting the extent to which parents can afford school fees, drop-off in pupils enrolled poses a risk. If plans to remove charitable status for independent schools come to fruition, costs could soar, which could significantly affect the sector which employs 3,549 teaching staff in Scotland. Unlike state schools, there is no commitment to protect the number of teachers.

State schools also need to plan ahead. They could receive extra money from VAT on school fees and if independent school fees become prohibitive for some, state school rolls could increase.

Robin Turnbull is a Director, Anderson Strathern

Many schools are already making difficult decisions about how much of these costs to absorb themselves and how much to pass on to parents. Options include raising fees further, selling off buildings, offering fewer bursaries or ending boarding provision.

Restructuring the school’s model and assets may safeguard against the loss of charitable status or certain tax reliefs. For instance, a separate charity, with the school operating as a subsidiary company, or allowing parents to pre-pay school fees.

Merging with other schools, outsourcing services and sharing resources might save costs, but must be handled carefully to avoid breaches of employee rights during a relevant transfer.

To avoid more drastic action, negotiation of reduced pay and reduced hours remains possible. Settlement agreements may be used as these are one of the few means to legally prevent an employee from pursuing certain claims like unfair dismissal and discrimination. If other options are not enough, compulsory redundancies may be required.

This is not unique to independent schools; a recent survey found 30 per cent of employers are likely to make redundancies in the next year. Process, consultation and fair non-discriminatory selection will be important – especially where there are 20-plus individuals involved. Ultimately, redundancies may be appropriate to operate effectively and to safeguard the school’s long-term future.

Parents are also putting plans in place. Some may consider paying school fees when the time is right from income. However, this can be challenging with unforeseen risks, high inflation, and increased fees. Structuring family savings could not only benefit their children/grandchildren, but also bring individual tax benefits by reducing the potential liability to inheritance tax. Through careful tax and financial planning, a grandparent can use “surplus income” to fund school fees without inheritance tax implications and gifting capital into a trust for the grandchildren might be worthwhile in the long run.

It is hard to say what might happen. It is crucial that schools and parents consider contingency plans to quickly adapt to the challenges ahead.

Robin Turnbull is a Director, Anderson Strathern